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Welcome to the League of Women Voters program brought to you by the Columbia-Missouri League.
I'm Elaine Blodgett.
Tonight's program is about TDDs, Transportation Development Districts, and similar entities.
It's about all the different kinds of financing solutions that are being used today that involve
both the private and public entity.
Participating in our discussion are three very qualified citizens of Columbia, Craig
Van Matry, attorney at law, Dale Whitman, professor of law at the University of Missouri,
and Bill Watkins, assistant city manager.
Welcome.
Let's get started with Craig opening for us and explaining what is a TDD.
Well, a Transportation Development District is a way for, in effect, public money to be
raised for public infrastructure in connection with a private development.
It's a creature of the Missouri statutes.
There are a group of maybe a hundred separate sections in the Missouri statutes that say
if you follow the rules and play the game this way, then you can establish a separate
tax district.
It's really not anything new because people have had things like public water supply districts
and special road districts for years to do that which requires more money perhaps than
a private individual ought to contribute towards a particular road or sewer line or something
along those lines and yet which, in effect, allows a developer to push the process forward
much more rapidly than otherwise would be the case.
Now, Craig, when you talk about these special benefit districts, the TDD is a little different
than that, isn't it, in the sense that with the special benefit district we normally just
assess the property owners and they pay.
They may pay just for a year.
They might pay over a five or ten year period, but they write a check.
In the TDD, on the other hand, the money is really coming out of the retail customers
who buy products in the retail stores within the district.
So they're really paying the freight for the improvements in the infrastructure.
So we're talking about a special taxing district.
You bet.
And when we're talking about infrastructure, we're talking about roads, sewers, all the
basic necessities.
Well, actually, probably not sewers because these are transportation.
No, just roads.
Just transportation.
That's right.
And we're talking about houses and signs and ramps.
Okay, anything related to transportation.
But parking garages.
Got to be related to transportation.
And we're talking sales tax, aren't we?
Well, you can do property tax.
You can do special assessments.
And I think you're going to see some of that in the future.
I think it's coming to that.
There's a political dimension to it.
There's an economic dimension to it.
So far, the TDDs in Columbia haven't assessed anything other than sales taxes.
Even the rate of tax that they've assessed has just been an additional half cent because
of political pressure from the city.
The city doesn't really have as much political power over TDDs as they would want.
I mean, you see Bill over there nodding his head vigorously that they would like to have
a lot more control over TDDs.
But they do have to approve the TDD.
No, not really.
Well, let's go through the process.
We've got to back up a little bit.
As you can tell, you all know what you're talking about, but now I have to represent
the public who's going, OK, what are we talking about?
To get started, it's in the state law, right?
And this type of development's been in there for about since 1990?
1990, right.
And it's a fairly new idea.
And many other states have similar ideas.
So what happens when, or can you give a good example of a place that's done this, how
they went through the process, maybe?
Well, Columbia's actually a pretty good example because we have, I guess, eight of them currently
approved, Bill, is that right?
That's correct.
And the 10th one, the application just came in for them.
OK.
And we're likely to see some more.
Yeah, I mean, this Thursday I'm going to go before the Circuit Court to try to get another
one for them.
OK, so it's something that a developer oftentimes, it doesn't have to be a developer.
But that's all the ones we have in Columbia.
Were generated by developers.
OK, so what's the decision that the developer in Columbia has to make about why he or she
would want to do a TDD?
It's an easy computation.
The developer looks at the deal and says, this project, this tract of land, works much
better for customer convenience, attractiveness, if there's better roads and better access
to the site.
OK.
Better, in effect, transportation amenities.
Now, the Missouri statutes allow for a variety of different kinds of special tax districts
to be created.
And when the city says they don't have as much control over it as they'd like, although
it's true that legally they don't.
As a practical matter, they do have quite a bit of control.
You've got the authority of the city and the fact that it tends to be a relatively
closed group of people that do things and continually petition the city.
And you just know that if you don't generally satisfy the city with respect to what they
want, that they will remember.
The institutional memory is long and Bill's memory is very good.
Well, in fact, Craig, you filed the first TDD application in Columbia, did you not?
I didn't file the first one.
I got the first one set up, I think.
There was one set up at Lake of the Woods.
Well, the first one was at Vandiver, at Center State.
And then Lake of the Woods.
I think we were the first that actually started collecting taxes and doing something with
it.
Lake of the Woods has been collecting taxes for a long time.
When you did that.
At the C-Store?
They picked up the C-Store at the very beginning.
The first one I did was shops at Stadium, which was the Biscayne Mall.
OK, let's work with that one because all of us go down there on Stadium and that's
a wide shopping area.
It was decided that there were some road improvements, I assume, that had to be made in that area.
So some kind of corporation, in order to do a transportation development district, my
understanding is that it's called a political entity, which means somewhere along the line
somebody had to set something up and then what did they next have to go through.
Well, here's the steps that you followed.
Right.
You can set up a transportation development district.
I could do one in my backyard.
It wouldn't do any good because…
You don't have a lot of retail sales.
There's not a lot of retail sales coming out of that.
But the special assessments could be really good.
I could assess, but that's ten cents per hundred dollars.
No, the special assessment doesn't have a…
Well, OK.
The general property tax.
The problem with special assessments is they're not deductible.
OK, so you're going to set up something.
Right.
So, anyway.
Are you going to set up a corporation of some sort?
The district is a separate political subdivision.
OK.
It's like a water supply district.
OK.
It's a separate, in effect, entity that the statute says if you follow the procedures,
and the procedures in this case say, first thing you do is you have to get everybody
who lives on this particular tract to vote.
If nobody lives there, then the owner of the property gets to vote based on one vote per
acre.
OK.
So, let's say you've got a developer who's got 40 acres.
He's got 40 votes if he's the only owner.
And then he petitions the circuit court.
The circuit court then has a hearing and decides whether or not it's in the public's best
interest to create this district.
And then when the judge enters that decree, forming the district, he specifies a date
when there will be an election of the property owner to elect directors.
And the directors of that entity, which are for all practical purposes selected by the
property owner, because the property owner is the one voting for these directors, the
directors then meet and they govern the entity.
They assess the tax and they collect it.
Although in my case, every single one of the ones I've collected, I've made a deal with
the city, and this is where the city's leverage comes in incidentally, I made a deal with
the city that the city would collect the tax and remit it to the various purposes of the
district, including paying off bonds.
So, when the city gets the regular tax revenues that they're entitled to, they also collect
the TDD revenues and keep it in their bank account until it's ready to be spent.
Rather than the TDD, which could keep it in their own bank account.
Well, we have one that does that.
And there is one that does that.
OK, there is one that keeps it around.
Now how do we as the public know when, for example, that's been paid off?
There's a special account, right, that these monies are put in.
No, not necessarily.
The district by law can last for 40 years.
Typically, they only last as long as it takes to pay off the debt that they incur to build
the improvements that they were formed to fund in the first place.
That would commonly be 10 years, I assume.
Well, 10 is a little short.
15 to 20.
But the district can also change the scope of the improvements and add more.
That's right.
And in fact, the center state district is talking about doing that right now on some
improvements on the other side of 63.
So that essentially they'd sell bonds in year one, but they may come back if they have
additional development that can support additional bonds, can sell bonds in year seven.
And that would be because they've got more retail sales.
Because they've got new- Because the first part of the project was
successful in- That's correct.
... attracting customers.
That's correct.
Now, does it depend on what jurisdiction the street is in, for example, as to who they're
dealing with?
Yes.
The TDD?
Yes.
The statute says that MoDOT must approve all TDDs.
In practical application, if there is no MoDOT street in there, they don't get too interested.
If it's on a local street, for instance, a city street, then the city must approve it.
Okay.
Now, this is why I said that the city's got an approval power.
Well, but they only have approval power on the project.
On the actual tangible work.
That's right.
And it's only because they're working on the city right of way.
Okay.
For instance, the Craig's project, the shops initially did no work on a city right of way.
And so, MoDOT approved the plans, not the city.
Because we were working on a stadium.
We were working on a stadium.
Working on a stadium.
I'll tell you, another good example, though, would be the one that we did for the Grindstone
Plaza.
Right.
And that particular TDD is going to pay the city back for the entire cost of putting in
Green Meadows Road from Providence all the way over to... So, that'll be a... The
city will get back about a million and a half bucks that it laid out for that road.
Is there any auditing process that goes on?
Yes.
Is there any way for the public to attend the meetings or to see the fund, how it's
spent?
All the provisions of the Sunshine Law and local government are applicable to TDDs.
Meetings are posted.
Are they posted where one would see them, or are they posted...
Not necessarily.
That is a...
On a door in a building.
In my opinion, it's a weakness.
Okay.
I give Craig a lot of credit because he has always posted all of the meetings with the
city on the city's official bulletin board.
Not all of our TDDs do that.
All right.
We've always had all the TDDs I represent have their meetings at the city hall.
We post the notice at the city hall.
We give Bill and the people at the office there, at the city office's notice of the
meeting.
We're trying to be as good neighbors as we can given the fact that there is sort of a
tension here between the developers, the developers who want these projects done, and they would,
if they could, spill over and use that money for more than would be, quote, purely public.
The city who thinks of the tax revenues as being really theirs, that they're grudgingly
required to let us use, and they want to make sure that it's used in the right way so that
nobody gets egg on their face.
Now does the TDD get all of the tax revenues in that area that it covers or just a percentage
of them?
Well, the TDD has to set a tax rate, a sales tax rate, which could be as high as 1% under
the law.
Okay, on top of whatever other state and local.
On top of whatever is already being collected by the city, the county, and the state.
So currently in Columbia, what are we at?
7.345, I think.
345.
Yeah, okay.
So a TDD would bounce that up potentially by as much as 1%, but in fact, I think all
of our TDDs have gone only to a half of 1% on the sales tax, and maybe the city prefers,
and obviously there's also the potential for some customer resistance if the sales
tax gets too high.
In fact, I was thinking about this in terms of just being an ordinary retail customer.
If I want to buy a big ticket item where the sales tax actually could amount to a significant
amount of money, well, I might decide to go across the street outside the TDD and save
that sales tax.
And if it's a 1%, and let's say I'm not going to buy a big screen TV, my wife won't let
me, but if I did and I spent, say, $3,000 on it, well, that's $30 of sales tax, and
naturally, if it were 1%, and I might prefer to go someplace where I didn't have to pay
that extra $30.
At half a percent, it's not so much.
After all, a retailer has to think about whether their customers will be put off by having
to pay that additional tax.
Well, you are exactly right.
Every single one of my client's tenants, of any consequence, is most uncomfortable with
the fact that they've got to pay a little bit more in tax than somebody across the street,
and they want to be in a consistent tax district because they think it will put them in a competitive
disadvantage.
If you're only spending $20, it doesn't matter, but if you're spending $200 or $2,000, then
after a while, you're talking about real money.
Oh, it does in large suburban areas.
You do know what the taxing districts are when you go to shop for a big ticket item.
So that's another reason, I think, that the additional rate has been kept down to half
a percent just because of that feeling you don't want to price yourself out of the market
with additional sales tax.
But the primary reason is the city's belief that if it were more than a half a cent, that
they would have trouble getting future tax extensions or increases passed.
And I think we saw a little of that last November.
At least that was an issue.
I never heard it articulated as a reason why people voted against it.
Well, we did.
I think both Bill and I did.
I heard it in a number of service clubs.
People said, well, you say the current tax, if this is the Proposition 5, which would
have been an additional one-eighth of a cent tax.
And we would say, well, it'll only be 7.4...
7.5 something.
Yeah, 7.4, 7.5, something like that.
They said, yeah, but you're not counting the transportation to development districts.
And there are already eight of them, and they charge an additional half a percent.
So you're not really giving us the full impact of what this will be on top of that.
And of course, it lost.
It failed.
But to say the cause and effect was the TD tax, I think it was a factor.
No, it was a factor.
And I believe, at least from my perspective, that one of the lessons from November 8th
was that people just don't want to pay any more taxes.
And that there is a limit to what people will pay, and we're pretty close to it.
There was that old rule years ago when they said 10 percent was about the maximum you
could ask in sales tax.
You could have changed.
It used to be 7.
It used to be 7.
We were always a little nervous about going over 7.
But the interesting thing about the TDD is the voters at large don't vote on it.
It's, if you will, exempt from the Hancock Amendment.
Well, they vote with their feet.
That's right, if they decide not to patronize that retail.
But they don't physically vote for it.
In all practicality, though, in Columbia, there will be, probably by the end of next
year, very few major retail outlets that are in a TDD.
Particularly if you look in terms of percentage of sales, probably, I don't hazard a guess,
but I'm sure it's well over 70 percent of retail sales are going to be in a transportation
development district.
Well, let me put you on the spot here, because an equivalent statutory scheme is a community
improvement district.
That's correct.
Which has a broader range of projects that you can spend money on.
That's right.
It's the same set up except that it's established by municipal ordinance.
Right.
But, again, don't you have to have a vote?
The vote, though, again, is of the property.
It's of the property owners.
You have to have a majority of the property owners based on…
I could have, with each one of these TDDs that we set up, had a CID instead, a community
improvement district, and had a broader range of projects that we could build all of a public
nature.
That's correct.
So, what do you think the city's attitude is going to be towards the formation of CIDs
in lieu of TDDs, the cities that have greater control?
Well, I think that was what we used as really the stick in trying to pull people together
on stadium.
We said, guys, this ain't fair.
You can't have some in and some out paying for the stadium improvements.
And unless everybody decides to play in a sandbox, the city will come in and we will
impose a CID.
CID also has some unique opportunities in terms of property taxes, and I think you'll
begin to see CIDs in residential neighborhoods.
In fact, I know that's being discussed by a couple of our residential developers to
pay for, as you said, a more broad base, but streets and other public infrastructure, sewers,
storm water…
But do you acknowledge, now that we have you here, do you acknowledge that these organizations
do take a lot of political pressure off, and you don't have to go out now and try to
pass a tax revenue stream to address a particular situation?
You could have a community improvement district, the city would have more control over it,
and assess taxes within that area, property taxes included, to address a variety of different
things in addition to transit.
We have, as a city, and I think most cities have assessed, based on benefit, streets,
sewers, all sorts of public improvements.
And this is really not a whole lot different than what we have done for years for very
specific purposes.
Worry there was a specific benefit that could be assigned to a particular piece of property,
state law allows you to assess it.
In fact, I think we did tax bills last night on the street.
So there's no real difference.
Well I don't see any difference either.
And I guess what I'm about to suggest is that I think you'll see these CIDs now becoming
equally popular with TDDs.
Now explain to me again, how are we going on this?
Is it the same set up?
Not necessarily.
Before we do that, is it true, Craig, that the TDDs have largely run their course in
Columbia?
That is, there just isn't, as Bill said, very much aggregated retail space left that
isn't in a TDD?
You know, when Justice Scalia was here giving his lecture and he was talking about how the
stock market was catching his breath, you know, and how ridiculous that sounded, I think
they're catching their breath because right now we're overbuilt in retail and apartments
and office.
And so the town is going to have to grow to absorb that.
But as soon as it does, you'll see another surge of these unless the statutory arrangement
has changed.
But I think the next time around it would behoove the city to say don't do a TDD,
do a CID, let us have control but we'll work out a list of projects here and then
TDDs will be less popular and CIDs will be more popular because the city will say in
so many words, let us help you do this right.
But in the context of that, we'll have much more control over it.
But right now on what grounds can a circuit judge deny a TDD?
I mean our position is very, very, very limited.
He doesn't have a whole lot of discretion.
If it meets the statutes of the private, he has to approve it.
He has to approve it.
That's right.
So you're either going to get the TDD statute tinkered with and the state legislature to
deny to developers the ease with which they are formed now.
I think the position that the municipal league and the cities have taken, in fact we tried
to have introduced last year, was simply to change the process that you had to come and
do a development agreement with the city prior going to get your petition.
Much like you have to do with MoDOT if a state highway is involved.
That makes a lot of sense.
As a practical matter though, Bill, you haven't had developers with TDDs who have sort of
just gone off on a tangent without full consultation with the city, have you?
Well I think yes, we have.
Well you shouldn't have.
I think we have.
And so that statutory change makes sense.
Well when you have that happen, can the public still find out anything about them and can
they still be audited?
Is there a way to?
There's still a way to...
There's still a way.
There's still a way to...
There are.
And the demand that you clarify that none of these are any TDDs.
None of those are at worse.
Well, I'm not so sure about that.
They're one they're not smiley.
I still have real problems with.
But the city's going to be collecting the tax there and there's going to be a development agreement.
That's correct, but we're funding, in my opinion, my humble opinion, we are funding infrastructure that developers should normally pay for.
Okay, well now we have a philosophical disagreement there. I mean, you are saying morally, I'm saying legally.
Well, I understand. Legally you've got the right to do it or we would probably have stood up and yelled, but we had no real ability to do that.
In fact, our real ability, and this is really kind of what ticks me off, is that our real ability is to approve the street plans for local right-of-way,
which we did. We worked with the developer, got them approved, and then found out that they were going to be funded by a TDD after the fact.
So that we had lost our handle to say, no, wait a minute, guys, this isn't right.
You initially thought the developer was just going to write a check for this.
Sure, and that's the way it normally works. We approved the plans and then a TDD was formed.
Although it is true that legally there isn't anything wrong with that.
Legally it's 100%.
And the bottom line on the TDD is that all of us are paying through sales tax.
The bottom line is…
Paying these improvements by sales tax.
The bottom line is the consumer is always going to pay for all of this because it's all funded by sales taxes.
The city's major source of revenue is sales taxes. So, you know, eventually the consumer pays for it all.
And if the consumer doesn't pay, whoever it is that set us up goes broke.
In fact, if you think of the case in which a developer, as Bill was saying about this other project,
simply writes a check for street improvements, which is not unusual. We've had a number of cases like that.
Well, that adds to the developer's cost, and that cost has to be recovered in the rents from the project.
And ultimately the tenants and the customers of the tenants are going to pay for that.
And they need free lunch.
And the reason we have TDDs is why?
Well, because I think that us, as most communities, have unfilled needs for transportation improvements.
I think if you go to any city that I'm familiar with, they've got a long laundry list of transportation projects that need to be done.
And so this is a way that a developer can say, okay, this may not be the highest priority, but it's on your priority list.
And we're going to take this and we're going to fund it with this revenue.
Is there any way that a developer could default, I mean that this organization, this political entity could default?
See, that's the thing that needs to be stressed here. When these improvements are made, the developer puts up the money.
That's correct.
And the developer is gambling that the revenues that will be generated from sales within that project will be sufficient to generate enough sales taxes that will pay off that debt.
And if that doesn't happen, the developer is going to have to write the check for the unfunded portion of it.
So it's a terrific economic gamble on the one hand.
On the other hand, if they know what they're doing, they get the money.
Not only the money, but they get interest.
And Elaine, it's fairly important to recognize that this is not a debt of the City of Columbia.
This is a debt of this little political entity which the developers created and nobody else.
So the taxpayers at large, if there were a default, if the revenues from the sales tax fell off for some reason,
maybe we went into a recession or maybe this store just turned out to be a terrible place that nobody ever wanted to shop.
But that would never fall back on the taxpayers of Columbia at large.
That's right.
Do the TDDs drive the development in certain directions?
Is that part of it too where the taxpayer, you know, the citizens might not want it to go in a particular direction,
but this would be a driver to go in a particular geographic location?
Well, there are two big limitations.
First, the money's got to be spent on transportation-related projects.
And second, the way we're doing them, the money's got to come from retail sales.
That means that a TDD for an office project doesn't make any sense.
There aren't any significant retail sales there.
A TDD for residential projects doesn't make any sense.
Likewise, a TDD for sewers or for store printings doesn't make any sense because they're not transportation-related.
So it's quite limited.
Okay. We've probably got less than a minute, and then I have to close.
Any one last statement by anybody?
I don't think they're a bad idea.
They worked out pretty well.
You obviously think they're a very good idea.
Well, they're a way of getting things done much earlier than otherwise would occur.
And I think Bill recognizes that, although my last point is that on the CIDs, if the city made those more attractive,
the TDDs would fall by the wayside, I think.
And so I think that's where we'll be headed as the Columbia continues to grow.
Okay. I want to thank all of you for coming.
Again, let me get those names.
Bill Watkins, Craig VanMaitre, and Dale Whitman have joined us this evening to talk about TDDs,
and probably you can get more information from any of them if you need it on TDDs and other various ways to finance projects.
Thank you for joining us. Good night.
Thank you.